OECD Proposes Progressive Tax Shift to Revitalize Hungary's Economy

The current tax system, implemented over a decade ago, leaves Hungary with one of the least progressive structures among developed nations. Low-income earners currently face a tax wedge 14 percentage points higher than the OECD average, a disparity that suppresses labor market participation. By cutting rates to 9% for the lowest earners and introducing a 22% top bracket for the wealthiest 10%, the government could stimulate employment by an estimated 1.4%.

Beyond labor market gains, the OECD suggests that shifting the tax burden will improve revenue buoyancy. Because progressive systems capture more revenue as the economy expands, the tax-to-GDP ratio could rise by up to 0.8 percentage points by 2040. Furthermore, the report recommends raising capital income taxes from 15% to 25% to curb tax avoidance and prepare for the long-term budgetary impact of rising pension and healthcare costs. While high-earners and investors would face steeper rates, the study concludes that the resulting macroeconomic stability and increased consumer demand would provide a net benefit to the broader Hungarian economy.